Barnes & Noble Education reports its second quarter 2016 earnings, net income = $33.4M
The education division of Barnes & Noble, which was recently spun off into its own company, reported 2016 Q2 earnings today. Barnes & Noble Education, Inc. said net income came in at $33.4 million, while sales declined 3 percent.
I can’t decide if this is a good report or not. After all, the education division is at least profitable (the retail company, Barnes & Noble, reported a loss of $20.5 million in its earnings report).
But investors are clearly not happy, taking down the stock over 17 percent following the release of the report. (The markets are down today, but not sharply.) The stock had risen with the recent gains in the market in November, but today’s report looks like a reason for some investors to sell.
Here is Barnes & Noble Education, Inc.’s earnings statement:
BASKING RIDGE, N.J. – December 8, 2015 — Barnes & Noble Education, Inc. (NYSE:BNED) today reported sales and earnings for its fiscal 2016 second quarter ended on October 31, 2015. Second quarter sales of $755.9 million increased $4.2 million, or 0.6%, as compared to the prior year. The Company reported net income of $33.4 million which is $3.6 million lower than the prior year period.
As previously disclosed, the Company became a separate public company on August 2nd, 2015, after Barnes & Noble, Inc. (NYSE:BKS) completed the legal and structural separation of its Retail and College businesses. “This second quarter of fiscal 2016 was the Company’s first stand-alone period as an independent public company, and we are proud of our booksellers’ performance,” said Max J. Roberts, Chief Executive Officer, Barnes & Noble Education, Inc. The Company continues to win new contracts, opening 7 new stores in the second quarter of 2016 with estimated annual sales of $6.6 million. In addition, the Company has been awarded contracts to open an additional 10 stores with estimated annual sales of $13.0 million. This brings the total year to date actual and planned store openings to 38, with estimated annual sales of $64.5 million. As of October 31, the Company operated 743 stores nationwide.
Comparable sales decreased 3.0% during the quarter and 1.9% year to date. “This fall rush period was negatively impacted by student enrollments, specifically in two year community colleges. Enrollments in our two year community colleges are down mid-single digits year over year which resulted in comparable sales in these schools decreasing by approximately 7%,” Mr. Roberts continued. “Comparable store sales excluding two year community colleges decreased by 1.3% for the quarter and 0.2% year to date.” The Company has a very balanced portfolio of schools with approximately 24% of its revenue generated by two year community colleges, and the rest coming from state schools, private schools and collegiate superstores. While the current enrollment trend is negative, the Company believes the long term enrollment trends are positive. According to the National Center for Education Statistics of the U.S. Department of Education (NCES), enrollment in post-secondary degree-granting institutions is expected to increase 13.9% from 21.0 million in 2012 to 23.9 million in 2022.
“Emblematic apparel continues to lead the growth in general merchandise sales increasing 1.3% for the quarter and 3.5% year to date on a comparable basis. During the fall rush season, school and computer supplies make up a higher percentage of our general merchandise sales and have been impacted by the decrease in enrollment and have not experienced the consistent growth of emblematic apparel,” explained Mr.Roberts.
The Company’s EBITDA was $72.7 million for the quarter, as compared to $77.9 million in the prior year, due primarily to reduced earnings from lower comparable store sales, increased expenses in technology and store support programs, separation expenses, and continued investments in digital education. These items were partially offset by earnings from our new stores.
Second Quarter 2016 Results from Operations
Results for the fiscal 2016 and fiscal 2015 second quarters are as follows:
(1) This non-GAAP financial measure has been reconciled in the attached schedules to the most directly comparable GAAP measure as required under SEC rules regarding the use of non-GAAP financial measures. Financials for fiscal 2015 have been presented on a carve-out basis.
Second quarter net income was $33.4 million, or $0.69 per diluted share, compared to net income of $37.0 million, or $0.95 per diluted share, in the prior year. The current year’s fiscal quarter has 48.6 million diluted shares outstanding, while the prior year period had 37.5 million shares outstanding. The current period reflects the dilution resulting from the issuance of additional shares of Barnes & Noble, Inc. common stock in connection with the previously disclosed Series J preferred shares by Barnes & Noble, Inc. in July 2015.
For fiscal year 2016, the Company is revising its comparable store sales expectations from increasing approximately 1% to be flat to down 2.0%. Also, the Company expects capital expenditures to be approximately $50 million, a decrease from the $55 million previously disclosed.